When they marketed CPF Life, they spared no effort to paint a rosy picture:Yes, sit back, relax and enjoy an endless monthly payout for life. No worries, everything taken care of by CPF Life. So that was how it was rolled out to the public - no need for rigorous analysis, statistical assurance of adequacy and detailed comparisons with current schemes - just tell them it is good and they will sign up. The fact is there is no guarantee on these payouts - they will be adjusted to ensure the solvency of the scheme and accommodate changing lifespan of Singaporeans. There is no guarantee that its is sufficient for basic living - food, electricity, transport and rental. Why does the govt insist on implementing this scheme that doesn't really ensure anything? The reason is this. Under today's minimum sum scheme, when the CPF account holder passes away, his funds go to his beneficiaries. By implementing the CPF Life, a large part of these funds can now go to a pool and can be used by the govt as payout to the elderly - this will reduce the govt expenditure on the elderly who would otherwise might need more govt subsidies and aid. Basically, the govt identified a source of funds to that previously went to beneficies and is now using it to reduce its own future expenditure through the CPF Life scheme. The govt has already ring fenced itself from expediture on the elderly with the Maintenance of Parents Act[Link], CPF Minimum Sum, Leaseback schemes and the CPF Life is there to further reduce its own expenditure. Ultimately, lower expenditure will keep corporate taxes low and will benefit the large network of GLCs and big businesses by shifting the burden to working class families and individuals. That would have been alright if we were having forbiddingly high corporate taxes and very light financial burdens on individuals & families. But Singaporeans are already shouldering the highest % of healthcare expenditure among developed countries and our income inequality is the highest among developed nations. Corporate profits as a % of GDP were at record highs in 2007 and to adopt policies to worsen the inequality does not put the interest of ordinary Singaporeans 1st.
The deceptively simplistic marketing of CPF Life also obscures the real problem with retirement. The main challenge for Singaporeans to retire comfortably is inflation. Take price of rice as an example:
...electricity tariffs, housing costs and transport cost have been rising too. Inflation can eat away whatever money you set aside for retirement. The best way to beat inflation is to get a decent return on money set aside for retirement. The CPF scheme performs very poorly in this respect - the real rate of return is 1.5% and it ranks as one of the worst performers (if not the worst) among provident funds (Malaysia had an average real return of 3.3%[Link]). The govt actually earns a higher rate of return by borrowing our CPF for it GIC investments. This is equivalent to a form of taxation that decrease the quality of life for our retirees especially those in the lower income bracket:
"To the extent, the government earns higher rate of return on the CPF funds than what it pays to the member, there is an implicit tax on the CPF wealth. This tax is likely to be fairly large and regressive as low- income members are likely to have most of their non- housing wealth in the form of the CPF balances. This vividly illustrates how political risks and non-transparency can arise in individual account system."
- Social Security Reform Imperatives:The Southeast Asian Case, Mukul G. Asher[Link]
The govt has to start putting Singaporeans 1st in its policy formulation especially those that affect the ordinary Singaporean retirees - the people who have spent their entire life working and contributing to the Singapore economy surely their interests have to come first.
Home > Breaking News > Singapore > Story Jan 2, 2010
10,000 to get 1st payout
ABOUT 10,000 Central Provident Fund (CPF) members aged 62 and above this year will get the first payout from the CPF Lifelong Income Scheme For The Elderly (CPF Life) on Tuesday. Thereafter, they will get the payouts by the seventh working day of each month. This will go on for as long as they live. The CPF Board said it has sent out letters to inform eligible members of the payout date and the amount which they will get. The monthly amount depends on the Retirement Account savings they used to join the scheme. There is no minimum amount required, but members with lower balances will get lower monthly payouts. Other factors that will affect the payout include gender, age and the plan chosen. The highest payout is about $1,040 a month. As of last month, about 37,000 members have opted for the annuity scheme, committing a total of $1.5 billion to it. Of those who signed up, 72 per cent qualified for the L-Bonus and 74 per cent qualified for the V-Bonus.